Barclays today reported a drop in first half profits hit by a poor performance from its investment banking arm and by currency movements, although its overall results were better than the City had expected propelling its stock higher .

The lender said a 46 per cent slump in earnings at its investment arm caused adjusted pretax profits for the first six months of this year to fall by 7 per cent to £3.35billion.

Barclays also said it had added a further £900million to its existing £3.95billion compensation pot for payment protection insurance ‘as a result of the lower expected decline in claims’.

Results: Barclays saw a 7 per cent fall in half year profits and added £900million to its PPi compensation pot

The bank said it had seen an increase in PPI cases filed by claims management companies in the second quarter of this year and that these were only 39 per cent lower than at their peak in May 2012. However, Barclays said direct customer claims were down 69 per cent.

Barclays shares, which have fallen by around 20 per cent so far this year, rose 4.6 per cent or 10p, at 229.15p in lunctime trade.

Broker Jefferies said a better-than-expected trend for impairments helped Barclays' profits come in 13 per cent ahead of its forecasts.

Barclays said the decline in investment banking profits was partly offset by improvements in its personal and corporate banking divisions as well as its non-core property division, whose assets it is looking to sell or run down.

Chief executive Antony Jenkins said the group was making ‘encouraging progress’ on its plan to ‘simplify, focus and rebalance the group’.

Finance director Tushar Morzaria said Barclays was undergoing a ‘transition year’ but that it was on target and ahead of plan in all its business units.

Barclays said its personal and corporate banking division, which includes personal banking and mortgages, cut bad loan charges ‘due to the improving economic environment in the UK’.

The bank has axed 5,000 staff this year, and has plans to cut a total of 19,000 jobs by 2016, of which 7,000 would be from its investment arm. Jenkins said staff numbers were at their lowest since 2007.

Barclays said it advanced £2.3billion in net mortgage lending in the first half of the year and £900million of gross lending to small businesses.
And said there were lower write-offs on overdrafts and home loans and more corporate recoveries.

Meanwhile, Barclays disclosed in today's report that it had extended part of a ‘non-prosecution agreement’ with the US Department of Justice, giving the authority more time for its probe into claims of foreign exchange rigging.

Performance: Barclays shares are about 20 per cent down this year

Barclays well-received results follow those of Royal Bank of Scotland last week, which saw the taxpayer-owned lender nearly double earnings in the first half of the year.

RBS rushed out its results a week ahead of schedule, saying it was because they were 'significantly stronger' than market expectations.

Minority state-backed Lloyds Bankings Group will unvweiled its first half results tomorrow. Earlier this week Lloyds was fined
£218million for manipulating Libor and ordered to pay back
£7.8million for a scam which enabled it to gain access to a Government
lifeline scheme more cheaply during the financial crisis.

The sector results come as the Bank of England today announced new rules for the banking industry aimed at making senior bankers more accountable.

The Bank said that under new rules top bankers who misbehave could see their bonuses clawed back up to seven years after they received them and even if they have already cashed them in after receiving them as shares.

The move comes after a series of scandals such as the mis-selling of payment protection insurance and interest rate swaps for small businesses, Libor rate rigging and even money laundering.

Views from the City

Samuel Springett, trader at Accendo Markets, said Barclays rally was a welcome relief for shareholders after seeing the share price hit year lows last week.

He said: ‘The drop in investment banking revenue, coupled with more provisions for miss-selling has not dented trader’s confidence as they scrambled for shares at any price on the open. Barclays has joined RBS at the party, will the other UK banks follow suit this week? ‘

Shore Capital analyst Gary Greenwood said the results were ahead of expectations, while Mike Trippitt of Numis said investment bank revenues were better than feared.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: ‘It would appear that Barclays is riding the wave of a recovering UK economy, whilst its strategy to streamline the business is also beginning to reap some rewards.

‘However, overall income and adjusted profits slipped, largely driven by difficulties within the Investment Bank. The additional PPI provision is an unwelcome surprise and the company's assertion that 2014 is a year of transition is little different from the preceding few years, which have also fallen into that category for various reasons.

‘In addition, there are separate regulatory investigations continuing which could have detrimental financial and reputational effects.’